STEINGART v. EQUITABLE LIFE ASSUR. SOCY. OF THE UN

William STEINGART et al., Plaintiffs,
v.
The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES et al., Defendants

Metzner, District Judge.

The opinion of the court was delivered by: METZNER

METZNER, District Judge.

Defendants have moved pursuant to Fed.R.Civ.P. 12b(1) and (6) for an order dismissing the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted.

This is a double class action for alleged violations of the federal antitrust laws. Although not stated, jurisdiction is apparently predicated upon 28 U.S.C. § 1337. Plaintiffs purport to bring this action on behalf of "all owners of participating life insurance policies issued by mutual life insurance companies." The four named defendants have been sued as representitives of the class of "all mutual life insurance companies doing business within the United States."

The complaint alleges that the defendants have acted, and are continuing to act, in concert to "base life insurance costs on uniformly fictitious factors and procedures in order to eliminate competition and to fix unreasonably inflated market prices for life insurance coverage." The only other substantive allegations in the complaint are found in paragraphs 15-18 where it is claimed that the defendants (1) have conspired to "have set up arbitrary and unreasonable accounting practices," and to use "outdated and inapplicable mortality tables, yield assumptions and experience factors," and (2) are "inflating the cost of plaintiffs' life insurance by unreasonably diverting excessive amounts of money to reserve funds, unassigned surpluses, and executive benefit programs, in addition to funnelling vast sums of money into areas completely unrelated to life insurance." Finally, it is alleged that the defendants' officers and directors are "not fulfilling the proper obligations of their offices," and have "arranged to perpetuate themselves in power as the controllers of their respective companies, ignoring and obliterating every semblance of corporate democracy."

Plaintiffs seek an order directing the defendants to cease and desist from "violating the Federal antitrust laws," and from using reserve funds for "ventures unrelated to the life insurance business." In addition, plaintiffs ask for an order requiring the defendants (1) to "correct their accounting procedures," (2) to create procedures to assure plaintiffs "their rightful participation in the management and affairs of the respective companies," and (3) to "disgorge to plaintiffs, as dividends rightfully due to them and as their interests may appear, the vast excessive sums now being held improperly in reserve, surplus, and/or other accounts."

Defendants rely on the provisions of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015 (hereinafter referred to as McCarran Act), to sustain their motion. Section 1012 thereof provides, in pertinent part:

"(a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.

(b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . .: Provided, That after June 30, 1948, . . . the Sherman Act, and . . . the Clayton Act, . . . shall be applicable to the business of insurance to the extent that such business is not regulated by State law." (Emphasis added)

The McCarran Act was spawned by the Supreme Court's decision in United States v. South-Eastern Underwriters Assn., 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944), which held for the first time that insurance transactions were interstate commerce subject to the federal antitrust laws. Congress declared in the preamble to the Act that "the continued regulation and taxation by the several States of the business of insurance is in the public interest." 15 U.S.C. § 1011.

Since the alleged antitrust violations in the instant complaint involve the "relationship between the insurance company and the policyholder," it is clear that we are dealing here with the "business of insurance." Securities and Exchange Commission v. National Securities, Inc., 393 U.S. 453, 460, 89 S. Ct. 564, 21 L. Ed. 2d 668 (1969). The only question is whether this "business of insurance" is "regulated" by state law so as to displace the federal antitrust laws.

Defendants argue that inasmuch as the three named plaintiffs are all residents of New York, that state's laws are applicable to each of the defendants, even those incorporated elsewhere.

In order to overcome the applicability of the McCarran Act, however, plaintiffs argue that "where the price-fixing conspiracy is nationwide in scope and where the plaintiff policyholders [those whom plaintiffs seek to represent] who are resident in all fifty of the states are having relationships with their own particular companies in certain states directly affected by the conspiratorial actions of insurers in other states, the McCarran Act exemption cannot be available." To support this position, plaintiffs rely on the Supreme Court's decision in Federal Trade Commission v. Travelers Health Association, 362 U.S. 293, 80 S. Ct. 717, 4 L. Ed. 2d 724 (1960). This case, rather than being supportive of plaintiffs' position, is authority for granting defendants' motion.

The decision does not render the McCarran Act inapplicable to the present lawsuit. In Travelers Health, the Court was faced with the question of whether an insurance company's mail order business was regulated by state law "so as to insulate its practices in commerce from the regulative authority of the Federal Trade Commission." Id. at 295, 80 S. Ct. at 718. The insurance company there was a Nebraska corporation which was licensed to do business only in Nebraska and Virginia. However, from its Nebraska offices, it conducted a mail order business with residents of every other state. The FTC sought to enjoin certain advertising practices of the company which it felt were deceptive. The company objected on the ground that such regulation was inapplicable by virtue of the McCarran Act inasmuch as Nebraska had legislation which prohibited deceptive advertising by its domiciliaries, not only in Nebraska, but also in any other state. In holding the McCarran Act inapplicable, the Court observed that "the state regulation which Congress provided should operate to displace this federal law means regulation by the State in which the deception is practiced and has its impact," and not regulation of a domiciliary state which purports to have extraterritorial effect (at 299, 80 S. Ct. at 720). The case was then remanded to the Eighth Circuit for a determination as to whether the various states into which the insurance company sent its policies "regulated" the alleged misconduct, so as to bring the McCarran Act into play.

&nbsp;It is unnecessary to inquire into the regulatory schemes of the fifty states in the instant case since we are dealing with a private antitrust suit, not an action instituted by the federal government in its regulative or enforcement capacity, such as occurred in Travelers Health. A government action under the antitrust laws is manifestly different in scope and purpose than a private suit. "The Government seeks its injunctive remedies on behalf of the general public; the private plaintiff, though his remedy is made available pursuant to public policy as determined by Congress, may be expected to exercise it only when his personal interest will be served." United States v. Borden, 347 U.S. 514, 518, 74 S. Ct. 703, 706, 98 L. ...

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